The COVID-19 pandemic’s toll on low-income families, frontline workers, small businesses, and communities of color has laid bare the consequences of income, wealth, and racial inequality in the U.S. Tens of thousands of Americans are contracting the virus daily, millions of workers have lost their jobs, businesses are shutting down, and whole communities are suffering. In response, impact investors have begun to mobilize private capital to support the vulnerable, sustain businesses, and keep struggling communities afloat.
PCV’s new, expansive discussion paper – Meeting The Moment — examines how impact investing policy can be used to help private capital address inequality and support COVID-19 recovery efforts in the U.S.
While federal, state and local public resources have been mobilized to respond to the crisis, the sheer scale of the need has strained already limited public budgets. COVID-19 presents new opportunities for impact investors, working in concert with policymakers, to find sustainable solutions to address inequality. Impact investors can play a significant role in rising to meet this moment, helping the country build back better by making targeted investments that build wealth, especially among Black, Brown, Indigenous, and rural communities and women.
Impact Investing Policy and Health, Community Development, and Housing
As part of building back better, the government has an opportunity to address the current crisis and combat long standing inequality by increasing collaboration between the health, community development, and housing sectors. Smart federal policy can unlock additional investment and reduce long-term costs by supporting innovations in affordable housing and healthcare provision rooted in the recognition that housing is foundational to health.
Today, healthcare practitioners and insurers are increasingly aware of the importance of “social determinants of health,” or the conditions and places in which people live, work, learn, and play that affect their health outcomes. This shift has led to the creation of new public-private partnerships and cross-sector collaborations to address the underlying structural inequities that impact health. Such initiatives have included, among others, health insurers’ investments in affordable housing as a long-term strategy to improve community health and reduce expenditures. Impact investors have the potential to deploy large amounts of private capital to address the underlying inequities in health through place-based, community-centered initiatives that address social determinants of health – especially through affordable housing. For instance, additional guidance and supportive federal policy can help leverage or complement federal healthcare programs that support affordable housing development.
1. Build Capacity for “Community Quarterback” Organizations
This can lead to increased availability of affordable housing for low income communities, particularly communities of color; and improved long-term health outcomes for low-income communities.
Because low-income communities often make tradeoffs between paying for housing and accessing healthcare, addressing housing insecurity will improve health outcomes for communities across the U.S. Initiatives to address housing insecurity to improve health outcomes often rely on public-private partnerships — for example, between government, healthcare providers, and community organizations working on addressing homelessness — and require highly integrated programming championed by a “community quarterback” organization that acts as a systems integrator for community development work.
An example of this type of public-private partnership is Kaiser Permanente’s Thriving Communities Fund, a $200 million fund to address housing stability and homelessness in the communities in which Kaiser operates. Within this broader fund sits the Housing in Health Equity Fund, in which Kaiser partnered with Enterprise Community Partners to finance the East Bay Asian Local Development Corporation’s work to keep ownership of an apartment complex in East Oakland that was on the verge of gentrification. Through this collaboration, residents can continue to live in affordable, quality housing in East Oakland, reducing the likelihood that they will forgo medical care because of high housing costs. In this partnership, Kaiser Permanente, as one of the largest health care providers in the country, was able to play a leadership role in coordinating the various resources and providing necessary capital to fund the initiative.
In order to ensure that programs like this can scale to all communities in the U.S., the federal government can provide further guidance and resources, both in terms of funding and technical assistance, to states and localities working on such public-private partnerships. Support from the federal government could incentivize private investors to participate in these transactions as well.
2. Provide Tax Incentives for Smaller Family Housing Creation and Rehabilitation
This can lead to the rehabilitation of a significant portion of U.S. housing stock; reduction of existing and prevention of future neighborhood blight; and the preservation of homes for lower-income families, especially in communities of color.
While the LIHTC has spurred the development of multifamily affordable rental housing, there is no similar policy to support the creation or rehabilitation of rental properties with just 1-4 units — despite the fact that such properties comprise about 50 percent of all rental units nationwide and 65 percent of rental housing in non-metropolitan communities. With an aging housing stock and many families struggling now to maintain their homes in light of COVID-19, an incentive program for private investors could prevent the kinds of widespread blight seen after the 2009 housing crisis, when the number of unoccupied residences across the country jumped by more than 25 percent from 9.5 to 12 million.33
A tax credit for private and nonprofit housing developers, lenders, and investors for building or rehabbing 1-4-unit residential properties could help sustain the housing market in many regions throughout the U.S. and extend affordable homeownership for hundreds of thousands of families. A proposal to create such a tax credit — Neighborhood Homes Investment Act (NHIA) — was introduced in the House and Senate in 2020.34
3. Support Regional Equitable Transit-Oriented Development Initiatives
This can lead to more funding for regional and local transit development efforts; and more affordable housing preserved for LMI residents, many of whom are people of color.
Local transit development, while good for communities in many ways, often drives up the cost of living in surrounding areas, leading to gentrification and loss of affordable housing for longtime residents. The Regional Equitable Development Initiative — led by Enterprise Community Partners with participation from other private and nonprofit financial institutions and the King, Pierce and Snohomish County governments in Washington — was created in 2016 to reverse this trend, acquiring properties surrounding transit development sites and protecting residents from the pernicious effects of increased property values. The pooled capital is structured as a loan fund for the acquisition of land near transit development projects, ensuring that housing in the area remains affordable.
The federal government can support such regional initiatives — which are, out of necessity, attached to local development efforts and responsive to local needs — through competitive grants or loan guarantees made available to state and local governments that would leverage additional impact investment capital. Such funds could be tied to the preservation of affordable housing and be made available and administered by the Federal Transportation Authority (FTA), U.S. Department of Agriculture (USDA), U.S. Department of Housing and Urban Development (HUD) or other suitable agencies.